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TVS Motor: Strong overall performance

Jul 21, 2010

TVS Motor Ltd has announced its 1QFY11 results. The company has reported a 41% YoY and 123% YoY growth in sales and net profits respectively. Here is our analysis of the results

Performance summary
  • Revenues increase by 41% YoY during the quarter. Total two-wheeler volumes jump by 31% YoY to about 460,000 units.
  • Operating margins contract by 0.3% YoY on the back of higher raw material prices (as a percentage of sales)
  • Profits jump by a whopping 123% YoY on the back of a strong operating performance, coupled with higher other income and a marginal increase in depreciation/ amortization costs as well as interest charges.
  • Board declared a second interim dividend of Rs 0.5 per share (dividend yield of 0.4%) for FY10, taking the total dividend to Rs 1.2 per share. The board has also recommended the issue of bonus shares (in the ratio of 1:1), subject to approval from shareholders.

Financial performance summary
(Rs m) 1QFY10 1QFY11 Change
Net sales 9,887 13,930 40.9%
Expenditure 9,114 12,891 41.4%
Operating profit (EBDITA) 773 1,038 34.3%
EBDITA margin (%) 7.8% 7.5%  
Other income                     3                   41 1224.0%
Interest expense/(income) 171 170 -1.0%
Depreciation/ Amortisation 404 405 0.2%
Profit before tax                 200                 505 151.8%
Extraordinary items                    -                      -    
Tax                   19 101 425.5%
Profit after tax/(loss)                 181                 404 122.8%
Net profit margin (%) 1.8% 2.9%  
No. of shares (m)             237.5             237.5  
Diluted earnings per share (Rs)*                    6.5  
Price to earnings ratio (x)*                  19.7  
(* on trailing twelve months earnings)

What has driven performance in 1QFY11?
  • TVS reported a 41% YoY increase in revenues on the back of a 31% YoY growth in overall two-wheeler volumes. During the quarter, the company sold a total of about 460,000 units as compared to 350,000 during the same quarter last year. Motorcycles sales volumes formed nearly 44% of the total volumes (same as last year), and grew by 32% YoY. Sales of scooters on the other hand, grew at a faster pace of 41% YoY and contributed to nearly 21% of total sales volumes during the quarter. Three-wheeler sales increased at a strong pace of 259% YoY, while that of exports increased by 78% YoY.

    Cost break up...
    (Rs m) 1QFY10 1QFY11 Change
    Raw materials             7,156           10,138 41.7%
    % sales 72.4% 72.8%  
    Staff cost                 523                 729 39.3%
    % sales 5.3% 5.2%  
    Other expenditure             1,435             2,024 41.1%
    % sales 14.5% 14.5%  

  • On the back of the expenses rising at a marginally quicker pace as compared to revenues, TVS recorded a 0.3% YoY decline in operating margins. As such, operating profits grew at a slower pace (As compared to the sales growth) of 34% YoY. The main culprit for the same was higher raw material prices which rose by about 42% YoY in absolute terms and stood at 72.8% of revenues as compared to 72.4% during the same quarter last year.

  • Apart from the decent performance at the operating level, a slower increase in depreciation charges and a decline in interest costs (on a year on year basis) helped the company perform strongly on the bottomline front. A 12 fold increase in other income also helped matters. The growth in the bottomline would have been higher, had it not been for the 426% increase in tax expenses.

What to expect?
At the current price of Rs 128, the stock trades at a multiple of 20 times our estimated FY12 earnings per share and 8.9 times our estimated FY12 cash flow per share (ResearchPro subscribers, kindly click here). Going by the stretched valuations, we reckon investors to not enter at current levels.

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Jan 24, 2020 (Close)


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